The Top 0.4% of Finland: an Analysis of Incomes and Tax Rates from 2009 to 2013

Kyle Ott and Cornelius Schneider

December 4, 2014

Introduction (1)

“Optimal” income taxation is always discussed against the background of classic economic theories:

In a very recent work, Piketty and Saez (2014) identify additional reasons why trends in top-income shares are correlated with the tax rates:

  • labor responses
  • evasion/avoidance responses
  • and bargaining responses.


The current debate still lacks information about the top of the income distribution.

Our paper’s purpose is to identify anomalies in the tax patterns of ultra-wealthy Finnish people.

Introduction (2): Why Finland?

(figure created by authors)

Our data (1)

(figure created by authors) Taloussanomat

Our data (2)

  • 70,402 observations (N = ~15,000 ; T = 5)

  • Scraped all five years: 2009 to 2013

  • Created time series dataset

  • Created panel dataset using names as unique id’s (N = 4867)

  • Variables

    • Name

    • Total Income

    • Total Taxes Paid

    • Average Tax Rate

    • Rank

Share of tax revenue paid by top 0.4%

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(figure created by authors)

(figure created by authors)

Research Question

What is the responsiveness of reported taxable income to changes in average tax rates?

  • Our research is motivated by the framework laid down by Gruber and Saez (2002), Saez (2004), and Giertz (2007).

  • Gruber and Saez (2002) and Giertz (2007) uses panel data to observe income elasticities. Saez (2004) uses aggregated time series.

  • All of these papers look to observe long-term behavoiral elasticities, but given our dataset, we are only looking for short-term elasticies.

Average tax rates in decile means

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(inspired by Riihelä, Sullström, and Tuomala (2010))

Key Findings (1)

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Key Findings (2)

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Model from Giertz (2007)

Conclusion

Limitations:

  • Limited expressiveness of average tax rates
  • Only short-term elasticities (not long term)
  • Lacking variables: marginal tax rates, controlling for other kinds of income, demographic controls, and marital status control

Further research needed!

  • Panel fixed effects model
  • Further robustness checks
  • Comparison to other Scandinavian countries
  • Investigating our counterintuitive result

References

Giertz, Seth H. 2007. “The Elasticity of Taxable Income over the 1980s and 1990s.” National Tax Journal. JSTOR, 743–68.

Gruber, Jon, and Emmanuel Saez. 2002. “The Elasticity of Taxable Income: evidence and Implications.” Journal of Public Economics 84 (1). Elsevier: 1–32.

Piketty, Thomas, and Emmanuel Saez. 2014. “Inequality in the Long Run.” Science 344 (6186). sciencemag.org: 838–43.

Riihelä, Marja, Risto Sullström, and Matti Tuomala. 2010. “Trends in Top Income Shares in Finland 1966-2007.”

Saez, Emmanuel. 2004. “Reported Incomes and Marginal Tax Rates, 1960-2000: evidence and Policy Implications.” In Tax Policy and the Economy, Volume 18, 117–74. MIT Press.

Taloussanomat. “Tax Information Highest Incomes 2009-2013.” http://www.taloussanomat.fi/verotiedot/.